Understanding The Key Factors Driving Viacom’s Revenue Trend
Viacom Inc. (NASDAQ: VIA) has seen its revenue decrease by 0.8% in FY 2019 (fiscal year ends on September 30 for Viacom), from $10.01 billion in FY 2018 to $9.88 billion in FY 2019. Lower revenue was primarily driven by unfavorable foreign exchange impact, especially in UK and Latin America. Media Networks’ revenues decreased 1%, while Filmed Entertainment saw a rise of 1% in revenues. Over the next one year, the trend is expected to reverse, with total revenue projected to increase by $162 million, or 1.3%, to $13 billion in FY 2020.
To understand how each revenue segment of Viacom is performing and what is driving the revenue changes, view the Trefis interactive dashboard analysis – Viacom Revenues: How Does Viacom Make Money?
Viacom’s Business Model
Viacom makes money primarily through its owned TV channels and through production and distribution of movies. It has 2 primary operating segments-
(1) Media Networks: It creates, acquires, distributes, and sells programming and other content, along with providing advertising & marketing services.
- Advertising: Generates revenues from the sale of advertising and from marketing services, depending on the number of viewers and viewership demographics.
- Affiliate Fees: Generates revenues through fees from distributors of programming and program services, such as cable television operators, direct-to-home satellite television operators, mobile networks and SVOD (subscription-based video on demand) and other OTT (over-the-top) services.
- Ancillary: Revenue generated from licensing the company’s brands and intellectual property, creating and publishing interactive games, recreation experience, and live events.
(2) Filmed Entertainment: It develops, produces, finances, acquires and distributes films, television programming and other entertainment content.
- Theatrical: Generates revenues worldwide from the theatrical distribution of films, primarily from audience ticket sales.
- Home Entertainment: Sales and distribution of DVDs and Blu-ray discs relating to the films released theatrically by Paramount and programming of other Viacom brands such as Nickelodeon, MTV, Comedy Central and BET, as well as certain acquired films and content distributed on behalf of third parties such as CBS.
- Licensing: Generates fees by licensing films and television programs produced, acquired, or distributed by Paramount, for a fee or on a revenue-sharing basis.
Segment-Wise Revenue Performance
a) Media Networks Revenue saw a marginal decline due to lower advertising and ancillary revenue in FY 2019. Revenue is expected to remain almost flat in 2020
- Advertising Revenue decreased in 2018 due to unfavorable foreign exchange. However, domestic advertising increased 1% reflecting growth in revenues from AMS (advanced marketing solutions) and higher pricing, partially offset by lower linear impressions. AMS, which now comprises approximately 20% of domestic advertising revenues, increased 76% in 2019, and includes advertising on Pluto TV.
- Affiliate revenue was marginally up, primarily driven by higher OTT and studio production revenues and contractual rate increases, which more than offset subscriber declines.
- Ancillary revenue decreased 12% in 2019, driven by lower revenues from certain consumer products franchises, as well as lower live events revenues.
b) Filmed Entertainment revenue was up in 2019 due to growth in Home Entertainment, Licensing, and Ancillary business
- Theatrical revenue decreased sharply by 18% in FY 2019, principally reflecting a difficult comparison against Mission: Impossible – Fallout in the prior year as against current year releases such as Bumblebee, Rocketman, and Instant Family. Growth is expected to be muted in 2020 as well.
- Home entertainment revenue increased 4%, led by healthy growth in the domestic market in 2019, benefiting from the releases of Mission: Impossible – Fallout and Bumblebee.
- Licensing revenue increased 5% in FY 2019 primarily due to an increase in current year television production revenues.
- Ancillary revenues saw a sharp rise of 33% in FY 2019 driven by higher international theme park licensing revenues and a new music rights agreement. The new agreement is likely to drive healthy growth over the next year as well.
- Filmed entertainment revenue is expected to grow further by about $146 million in 2020, led by strong growth in all segments except theatrical revenue.
To understand how Viacom’s revenue growth compares with that of its major peers, view our interactive dashboard analysis.
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